David Bojanini: Rethinking finance

Latin America’s rapidly growing middle class
offers a huge opportunity for the region’s
strengthening corporates, and particularly for its financial
institutions. As ever greater numbers of people join the formal
workforce, they are also signing up for bank accounts, pensions
and insurance.

But the sharply accelerating demographic shift also throws
up new problems for Latin banks, insurers and pension fund
managers, says David Bojanini, chief executive of Grupo de
Inversiones Suramericana. As financial institutions jostle for
market share in rolling out services to previously unbanked
clients, they need to work out new ways to do so.

"To advance financial services or insurance to the middle
class, and the lower-middle class, innovation is needed,"
Bojanini tells LatinFinance. "We need to think about the
avenues that are not the traditional channels of a banking
network, to form connections in ways that are much more
economic.

"The costs of very small-sized transactions through a
traditional banking network will generate losses. So
it’s important to innovate, to find a way to
facilitate these transactions for middle class clients so that
the costs don’t shoot up."

Mobile banking, already expanding in Sura’s
home market of Colombia, is a good example of that, he says.
Technological innovation is also critical to increase market
share among small and medium-sized businesses, he says. It is
those enterprises where real progress can be made in expanding
the client base.

"Where banks still need to penetrate is in the smallest
businesses," he says. "For micro-businesses, SMEs, there are
guarantee mechanisms that can allow them to access bank lending
at a reasonable cost."

The financial holding company known as Grupo Sura owns close
to 27% of Bancolombia as well as pension fund and insurance
businesses in the region. It rose to prominence in 2011, when
it bought ING’s financial assets in Chile,
Colombia, Mexico, Uruguay and Peru for €2.68 billion ($3.9
billion). In early 2013, it continued its expansion, buying
half of BBVA’s Peruvian pension fund.

Despite a trend for international banks –
particularly European ones – to retreat from Latin
America as they focus on difficulties at home, the presence of
global lenders in the region’s markets keeps
everyone alert, says Bojanini.

"It’s very important to have international
actors in each of the countries. It’s what forces
us to be better. Today in many of our countries, the financial
sector is led by local companies, they are local companies that
have understood that the markets are global and they have
prepared for that – they’ve been able to
maintain a leadership position in spite of the arrival of
foreign competition."

Growth worries

Globalization – and the commodities boom that has
come with it – has been the most important development
for Latin American economies over the past quarter century,
says Bojanini. And while the commodities supercycle is waning,
the conditions for Latin growth are likely to remain –
although his view cannot be entirely characterized as
"bullish", he says. Indeed, one of his biggest concerns is that
those conditions for growth will fall away.

The region must take advantage of opportunities to advance
further, by diversifying away from a reliance on commodities.
It also must make sure that the gains are equally shared, he
says. "That’s one of the worries: that the growth
is sustainable, and that it’s equally
distributed," he says.

Political risk also remains a concern. Many countries have
made great strides in cementing strong institutions and
fomenting stable regulations. Colombia boasts a solid, strong
electoral system, he says.

"However, no country is exempt from political risk. Above
all in countries where there is poverty and difficult
conditions, it cannot be said that they will not fall into the
hands of a leader who will destabilize the regulatory or
macro-economic system.

"But in those countries that have a record of being stable
and supporting development, it’s more unlikely
that this would materialize. I think that, for Colombia, that
risk is under control." LF

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